Question About Home Based Business

[gaffer]

Okay, I have a question for the home based/small business or accountant types.

My insect business is getting large enough that I think I can see some benefits by becoming a legit home business. The question I have is to do with taxes & claiming on personal income taxes. Also, assume the business is set up as a sole proprietorship.

Here is the scenario: ( I am keeping the numbers simple for illustration)

Company sales = $5,000
Eligible tax right offs = $10,000

Therefore, I have put $5K into the business to keep it going.

On my personal taxes, am I able to claim the $5K that I put into the business? Will this cause me to have either lower income, bigger return or both. I know that if I made any profit I would have to claim that as income & pay taxes, CPP etc on it so is the reverse true?

If you can think of any other considerations that I should be aware of, that would also be great.

Andrew

[Khyron]

Re: Question About Home Based Business

I believe there's a maximum percentage you can write off. Ie, you can't buy a truck for 10 grand for your 1K a year landscaping company and get 9K writeoffs off your normal salary.

You don't need to pay GST until something around 25-30K/year, and even then it's not worth getting incorporated IMO. I did the student painting thing many moons ago and even with 50K in sales it still wasn't worth getting more than a basic business license.

Btw - you mean 5K in profit right? You don't get taxed on gross sales. If that bug I bought off you for 50 cost you 25 dollars to make, you only claim 25$ income. Then you start writing off the gas you spent to deliver it to me, the kms you drove, the square footage of your house you dedicate to making them, etc.

Edit: Oh yah, you need receipts for everything. If no receipt, no write-off. Even the bank service charges for your ATM withdrawls can be written off if you keep the slips.

Khyron

[Canadian Turbo]

Re: Question About Home Based Business

Well I could tell you a thing or two about small businesses....

A few things; you can operate a home business at a loss and use that against income from other sources. However if you continually operate it at a loss without a great attempt to increase your business the feds may not be so happy. You do need to keep all your business related receipts and a log for your car if using it for business purposes and stuff like that.

I can help with more specific questions if you like just let me know.

[R_Ethug]

Re: Question About Home Based Business

i run my own bizniss sellin homemade videos yo.. the govt hates me for it tho

sorry its friday i'm bored right now

[Stonewall]

Re: Question About Home Based Business

i run my own bizniss sellin homemade videos yo.. the govt hates me for it tho

sorry its friday i'm bored right now

Yes and as you can tell Ryan operates that as a loss as we all know what type of movies he is making

[liquid]

Re: Question About Home Based Business

. I did the student painting thing many moons ago and even with 50K in sales it still wasn't worth getting more than a basic business license.

There's more to incoporation than just tax regulations. Personal liability is a huge reason many smaller companies get incorporated.

[Canadian Turbo]

Re: Question About Home Based Business

Yeah thats a good point Colin and it also depends what you intend to do with the money. Keeping it in a business as opposed to taking it personally gives you many more options as well as an 18% corporate tax rate to play with. The limit for GST is 30,000 as well but you can get one anytime and it can be advantageous in scenarios when you buy lots of products with GST.

[gaffer]

Re: Question About Home Based Business

Well I could tell you a thing or two about small businesses....

A few things; you can operate a home business at a loss and use that against income from other sources. However if you continually operate it at a loss without a great attempt to increase your business the feds may not be so happy. You do need to keep all your business related receipts and a log for your car if using it for business purposes and stuff like that.

I can help with more specific questions if you like just let me know.

This is what I wanted to know. I may have some more specific for you down the road. I am looking for a good book or two to make it easier.

To clarify the GST thing. I dont have to collect GST until sales top $30K if I read correctly? If I do get a GST #, do I have to collect & submit GST below $30K?

As for Ryan the first rule is to not get high off you own supply.

Thanks guys,

Andrew

[Canadian Turbo]

Re: Question About Home Based Business

To clarify the GST thing. I dont have to collect GST until sales top $30K if I read correctly? If I do get a GST #, do I have to collect & submit GST below $30K?

Yes that is correct if your sales are over 30K it is mandatory that you collect GST but under is optional.

[GTI_VR6]

Re: Question About Home Based Business

your avatar is the best! is that you? the expression is the shizz

[gaffer]

Re: Question About Home Based Business

your avatar is the best! is that you? the expression is the shizz

That is not me, in fact I am a fat white man rather than a skinny black dude.

Andrew

[1.8Trip]

Re: Question About Home Based Business

Correct me if I'm wrong, but I don't think that you need to incorporate to write things off as business expenses. I think that its particularily easy if you are the sole proprietor of a small business.

One of the main benefits to incorporating is to separate the business into a separate entity from the owner. While it doesn't make you completely isolated, it does give you a bit of shelter from liablity. You get to keep money in the comapany as retained earnings and take out what you need at your personal tax rate. Another benefit, as someone mentioned is that corporate tax is much less than personal tax and when you do decide to sell the business, you get to sell it tax free up to $500k.

The disadvantage is that incorporating is work and costs money. If you really don't need to do it, I personally don't think it should be done just for the sake of incorporating.

I'm not by any means an expert in this, but I did look into it a bit a few months ago.